Papa John's to Unleash $40M Marketing Blitz

This is critical for Papa John’s, of course, given the sentiment setbacks following founder John Schnatter’s many exits and PR flareups. On a different note, he could start divesting more shares come August 19. Schnatter has already unloaded 3.8 million shares since early May, and now owns about 6.1 million. His stake in Papa John’s is down to 19 percent from roughly 31 percent.

Before getting deeper into this brand awareness push, it’s worth noting where the rest of the money is going. An additional $40 million is being diverted to royalty relief for North America franchisees across three areas: systemwide relief available to all operators to agree to some customary terms and to move on from the past events; incentive based royalty relief around guest-service targets; and, lastly, additional needs-based royalty relief for targeted franchisees.

Papa John’s termed the program internally, “We Win Together.”

Ritchie said nearly 100 percent of franchisees opted in, and Papa John’s estimates spending half of the $40 million between the remainder of fiscal 2019 and 2020.

A June filing revealed that Papa John’s is paying Shaq $4.125 million over three years to rep the brand, in three payments. The first of which will be for $1.25 million. It will then up to $1.375 million and $1.5 million in years two and three, respectively. Shaq is also receiving 87,136 shares of stock that vest between 2020–2022. At the time of the agreement, the shares were worth about $4.4 million or so, but, naturally, can change dramatically if Shaq helps gather investor sentiment behind the brand. He’s also an investor in nine Atlanta locations, including with hand-picked design elements (his signature is on the front of the building and his size 22 footprints at front door).

Papa John’s owns about 70 percent of the joint venture, and Shaq poured roughly $840,000 into the restaurants’ acquisitions costs of $2.8 million.

So, again, Shaq has some skin in the game with this ambassador arrangement.

“Given the excitement Shaquille has created among the Papa John's teams, we have no doubt that he will help drive positive sentiment among consumers as well,” Ritchie said. “We are very excited to get them off the bench and into a new national advertising campaign coming up this fall.”

There is another element to Papa John’s marketing rush, beyond just getting Shaq’s recognizable face in front of customers. The brand has been testing a number of value and menu constructs that combine its premium offerings alongside more accessible price points. It’s a traffic-driving initiative. Papa John’s hired former Subway SVP of marketing for North America, Karlin Linhardt, to its global CMO role in March.

Ritchie said Lindhardt, who also spent a decade at McDonald’s, worked to enhance Papa John’s testing methodologies. Currently, Papa John’s is evaluating several different accessible value setups in about a quarter of U.S. restaurants.

Throughout the first half of the year, Papa John’s looked at a $6 medium, one-topping price point to provide an entry point for new customers. In other terms, it was deployed as a customer acquisition tool to balance the $12 promotional figure attached to specialty offerings. Get guests in the door, trade them up. Papa Johns said the pricing structure aided check pressures and provided a value offering it was comfortable with from a margin standpoint. Also, it created upsell opportunities with digital targeting and overall marketing. There are new menu items in the pilot, too.

However, chief operating and growth officer Mike Nettles said Papa John’s is “way beyond just testing a single pie promotion at $6,” right now.

“We started with that little one. And we kind of feel out the market space use, the medium as part of that offer. That seems to be fairly typical in the industry. We've expanded beyond that, rather dramatically,” he said.

Papa John’s value conversation has since evolved to a multi-tier price point value architecture, where it offers three different sizes of pizza at three different value-price constructs. All of them are one topping, with an upsell engine built-in to allow Papa John’s to quickly add multiple toppings, Nettles said.

“We can do that, with a multi-variant kind of pricing construct, really get a lot of people excited, they come in like you do. It's very traditional in the retail business. You see a very inexpensive entry-price point,” he said.

The notion is a pretty familiar ladder strategy in quick service. Customers show up for value and then realize they want something better. “And then you start to trade up through the tier,” Nettles said. “We are having a lot of success with that in the early stages.”

Tests will continue, he added, ahead of a national launch.

And it will have the weight of the marketing investment to drive it. “That's obviously a critical component of some of the investment dollars that we're going to be putting into the market world with the $40 million that we got coming on the marketing side that will also not only support the Shaquille O'Neal brand campaign, but also new promotional campaigns,” Ritchie said.

Tech and the third-party impact

While aggregators constitute only a small portion of Papa John’s total orders, the company continues to explore opportunities where it believes third-party represents an incremental sales channel, Ritchie said.

“We've got a few challenges that we are left to finish the deployment to all of our stores,” he said. “And certainly there is some geography, where some of these, some of these large aggregators play better than others. It does represent a substantial part of our growth for the future when we start to look at it.”

Ritchie added that, so far, an outsized portion of these customers are new users. “We have not seen them before,” he said.

Papa John’s is looking and talking to a number of other large national aggregators, in addition to DoorDash, which launched with 1,400 stores in March. As for how the space is affecting the pizza segment overall, Ritchie said the incremental lift—in Papa John’s case—balanced the share impact. “We're offsetting that with a modest increase or getting with the gain,” he said. “… My belief is that the national players will regain growth longer term in the future here, because there is a lot of marketing investment that's happening within the aggregators' space. That's driving some visibility.”

That’s a similar take to the one Domino’s CEO Ritch Allison shared recently. Only Domino’s is sticking to its in-house plan and waiting for that third-party marketing influx to subside. Basically, the idea is that aggregators are promoting heavy to battle for supremacy among each other. Once that sorts out, the brands investing in the delivery experience will stand above.

On that note, through a partnership with Drivosity, Papa John’s GPS-enabled delivery tracking is now in more than 1,000 U.S. locations—more than double from last quarter.

Papa John’s is also six months into the relaunch of its rewards program. Ritchie said the brand witnessed a stabilization of ticket and positive employee sentiment around the flexibility and ease of the platform.

“We are pleased with these results and are preparing to scale the new capabilities provided by the underlying loyalty technology to expand our one-to-one targeting of promotions and personalized experiences,” he said.

Papa Rewards, relaunched in Q4 of last year, enables more personalized experiences and helps with targeted promotions, instead of the broad LTO launches of old. In the past, Papa John’s didn’t provide the point of access customers needed. The new setup drives satisfaction without sacrificing perceive value or brand differentiation, Ritchie said, which can happen with blanket promotions.